As a foreclosure defense attorney for over 15 years, I’ve witnessed firsthand the devastation of financial hardship and the fear of losing your home. But there’s a beacon of hope: short sales. This guide, drawn from my extensive experience helping clients navigate this complex process, will equip you with the knowledge and guidance to determine if a short sale is right for you and, if so, how to navigate it successfully.
Understanding the Basics of Short Sales: From a Homeowner’s Perspective
Here’s my definition of short sale: selling your property to a third party for less than the outstanding mortgage balance owed on it. Essentially, you’re selling your home with your lender’s approval to avoid the more detrimental consequences of foreclosure. This option benefits both parties: you escape the negative mark on your credit and potential deficiency judgment, while the lender avoids the lengthy and costly foreclosure process.
Qualifying for a Short Sale: What I’ve Learned
Not every homeowner facing financial hardship can qualify for a short sale. Lenders typically have specific criteria they consider, including:
- Demonstrated financial hardship: This could be due to job loss, medical bills, divorce, or any situation that has significantly impacted your income and ability to make mortgage payments.
- Delinquency in payments: While some lenders may consider short sales with no delinquency, but most prefer to see at least a few missed payments before agreeing to this option.
- Limited assets: Lenders may be reluctant to approve a short sale if you have significant other assets that could potentially cover the difference between the sale price and outstanding mortgage balance.
- Bankruptcy Reaffirmation Not Required: You do not need to have reaffirmed your mortgage debt in a prior Chapter 7 bankruptcy in order to do a short sale. Reaffirmations only affect debt, not your ability to sell property you own. In fact, not reaffirming gives you an advantage as the lender has no leverage over you personally, only over the property. So it should be more willing to speed up the repossession process. Moreover, it is important to note that requesting any monetary contribution (personal guaranty, balloon payoff) in a short sale without reaffirmation is illegal, constituting a violation of the bankruptcy discharge injunction.
The Short Sale Process Explained: How It Works
If you believe a short sale might be the right option for you, here’s a general overview of the process:
- Consult with an attorney: Navigating the complexities of a short sale requires expert guidance. An experienced attorney can assess your situation, advise you on eligibility, and represent your interests throughout the process.
- Gather documentation: Your attorney will help you compile the necessary financial documents, hardship explanations, bank statements, paystubs and property details to present to your lender.
- Negotiate with the lender: Your attorney will lead negotiations with your lender to obtain their approval for the short sale and discuss potential deficiency judgments or repayment agreements.
- List and sell the property: A real estate agent experienced in short sales will market your home and attract potential buyers.
- Closing the deal: Once an offer is accepted and approved by the lender, the property goes through a standard closing process.
Impact on Your Credit Score:
Although a short sale is less detrimental than foreclosure, it will still negatively impact your credit score. The extent of the drop depends on various factors, but it’s generally less severe than a completed foreclosure auction and typically improves within two to three years.
Real World Financial Implications:
While a short sale offers advantages over foreclosure, it’s crucial to understand the financial implications:
- Tax consequences: Debt forgiven through a short sale may be considered taxable income in some cases. It’s highly recommended to consult with a tax advisor to understand your specific circumstances.
- Deficiency judgments: Some lenders may pursue a deficiency judgment if the sale price doesn’t cover the entire outstanding mortgage balance.
Alternatives to Short Sales:
Before fully committing to a short sale, explore other potential solutions, such as:
- Loan modification: This option involves renegotiating the terms of your loan to reduce your monthly payments and make them more manageable. However, similar to a short sale, the lender is not obligated to approve a loan modification.
- Forbearance agreement: This allows you to temporarily pause your mortgage payments while working towards a long-term solution.
- Hardship programs: Many lenders offer government-backed programs to assist homeowners facing financial hardship.
- Your Foreclosure Options: Learn about your foreclosure timeline, options, and residency rights so you can make informed decisions.
Seeking Professional Help From Steven Grace Law:
Navigating the complexities of a short sale can be daunting. Consulting with an experienced attorney specializing in foreclosure defense can provide invaluable guidance and protection throughout the process. Your attorney can:
- Assess your eligibility for a short sale and explore other options.
- Gather and prepare necessary documentation.
- Negotiate with your lender on your behalf.
- Protect your legal rights and interests.
Conclusion:
A short sale can be a valuable tool for homeowners facing financial hardship, offering an alternative to foreclosure with less severe consequences. However, it’s crucial to understand the process, its impact on your credit and finances, and the potential alternatives before embarking on this path. Consulting with an experienced attorney can provide the necessary guidance and support to navigate the complexities of a short sale and achieve the best possible outcome for your situation.
